Daily Financial News Analysis – 17th Feb’20

Table of Contents

Crude Oil

Sluggish Indian economy and industries that are heavily dependent on crude oil are likely to gain from a sudden drop in crude oil prices.
Reason for drop? the world’s biggest oil importer CHINA is suffering from coronavirus epidemic.
India is the world’s third-largest oil importer and the fourth-largest buyer of liquefied natural gas (LNG).
The oil market is currently facing a situation called CONTANGO, wherein spot prices are lower than futures contracts.

Chinese Q1 crude demand will be down by 15-20%.
This will help India in its macroeconomic parameters by containing current account deficit, maintaining stable exchange regime and consequently inflation.
The International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (Opec) have cut global oil demand growth outlook following the coronavirus outbreak.
RBI governor Shaktikanta Das on Saturday said declining oil prices would have a positive impact on inflation.

FPIs

India-focused funds that use Mauritius for favourable tax treatment are planning to route their funds through Singapore.
REASON: to escape higher tax liability after the Union budget removed some exemptions for those based in Mauritius.
Shifting to Singapore will ensure that category II FPIs are not saddled with higher tax liability as the city state is still exempt from indirect transfer provisions.

The removal of exemptions will mean that investors in category II FPI funds have to pay capital gains tax on indirect transfer of shares or other assets.
While a majority of foreign funds were exempted from indirect transfer provisions in 2017, the Finance Bill of 2020 has removed exemptions for category II FPIs, which include hedge funds, and funds that are set up in countries not compliant with the Financial Action Task Force (FATF) norms to combat money laundering and terror financing.
Mauritius is not an FATF jurisdiction.

GST Council

Goods and Services Tax (GST) Council will meet soon.
The federal indirect tax body will meet either by the end of February or early March before Parliament re-convenes after a recess.
The official said that the finance minister’s caution against frequent GST rate changes only meant that it was not desirable for the GST Council to announce rate changes at every meeting.
What needs to be done to raise revenue collection?
Centre favours increasing GST cess on select goods which will help in mobilizing resources for compensating states for GST revenue shortfall.
States want full compensation for their GST revenue shortfall, although the Centre is not in a position to find fresh resources in case of a shortfall in proceeds from a cess levied on luxury and sin goods.
Key worries on top of the mind of central and state governments concern revenue buoyancy, correcting anomalies in the tax structure and increasing compliance.

Agri R&D

Indian agriculture has undergone a tremendous change from subsistence to full-fledged commercial activity.
Today, for achieving Sustainable Development Goals (SDGs) by 2030, agriculture remains the most trusted wheel for lifting millions out of poverty and arresting inequalities.
The resilience of India’s agriculture production has been an outcome of synergy between the scientific fraternity in the National Agricultural Research System (NARS), comprising the Indian Council of Agricultural Research (ICAR), state agricultural universities (SAUs) etc, and farmers to promote ‘green methods’.
Constant technological improvements have led to four times increase in food grain production, six times in horticultural crops, nine times in fish and 27 times in eggs since 1951.
More than 5,000 ecologically sustainable crop varieties and hundreds of animal breeds have been developed for maintaining a resilient food system by ICAR institutions.
With advancement in mobile technologies, the reach of disease and pest surveillance mechanisms to farms has effectively reduced crop losses.
To address malnutrition, several bio-fortified crop varieties have been released recently.
Conservation of nearly one million diverse plant and animal genetic resources has maintained India’s tag of a biologically diverse country.
Diligent efforts have been made to empower women in agriculture.
The share of operational holdings cultivated by women has increased from 11.7% in 2005-06 to 13.9% in 2015-16, according to the National Bank for Agriculture and Rural Development (Nabard).
In the last decade, the compound annual growth rate of patents filed in the agricultural sectors in India was 12.5% — higher than the global growth rate of 11%.
This indicates the underrated strength of Indian R&D in agriculture.
Even though exports have been less than the potential, particular varieties like Pusa basmati rice and Darjeeling tea have created their own market in the west.
Reportedly, there are efforts to leverage 57 memoranda of understanding (MoUs) with countries and organisations to implement the ambitious 2018 agricultural export policy aiming to double exports from $30 billion to $60 billion by 2022.
Agricultural R&D, however, still has a long way to go, moving away from ‘business as usual’ activities.
It needs to develop an end-to-end package of interventions and strategic policy support, tailored to local needs of particular crops and agroecologies.
This calls for invigorating the scientific temper, focusing on problem-solving as part of the human resources capacity, and fostering R&D funding.
Since the Ninth Five-Year Plan (1997-2002), efforts have been made to enhance R&D spending to 1% of agricultural GDP by the end of each Plan period.
This target, however, has not been fulfilled till date due to ‘a tight fiscal situation’.
Spending on agricultural R&D in India still hovers around 0.40% of agricultural GDP (about ₹8,000 crore only in 2019-20), while most other countries spend more than 1%.
About 80% of R&D funding goes to paying salaries and other expenditure, leaving little to conduct comprehensive mission-mode research ventures.
Such minuscule levels of investment in R&D impedes the ability of science and technology (S&T) research to tackle multiple challenges…

Yield gaps
Changing consumer preferences
Declining resources capacity
Geopolitical situation
Adverse impact of climate change

Although agriculture is a state subject, most of the reforms and policies often miss to hit the ground due to various reasons.
Budgetary allocation should explicitly recognise the expenditure on agricultural R&D as one of the prime areas for both environmental and livelihood sustainability.
It’s time the agriculture sector has a long-term strategy focusing on food systems within each agro-climatic region per se, instead of a generalised food production strategy.
The cornerstone of success in bringing about a more vibrant agricultural sector lies in upping agricultural R&D spending to at least 1% of agricultural GDP.

AGR dues

Vodafone Idea Ltd will dip into its modest reserves and tap short-term loans to pay part of the ₹44,000 crore it owes the government in licence fee and spectrum usage charge dues.
The Supreme Court’s 14 February order directing telcos to pay up more than ₹1 trillion by 17 March.
Vodafone Idea only had ₹12,530 crore of cash and equivalent reserves as of December 2019, while bearing gross debt of ₹1.2 trillion.